On Thursday, President Mwai Kibaki announced that the IMF is currently considering the request as the country seeks the additional funds to cope with the impact of inflation as well as stabilise foreign exchange volatility.
President Kibaki said in light of runaway inflation and a weakening shilling the government would use all fiscal and monetary tools available to ensure economic growth was not slowed.
“I would like to assure Kenyans that the Government is keenly committed to protecting the gains we have achieved as a country and will judiciously employ all the fiscal and monetary instruments in order to safeguard our economy,” President Kibaki said.
Since January, the shilling has been weakening against the dollar losing as much as 15 percent even touching all time low of Sh95.30.
This has seen the Central Bank of Kenya come under immense pressure to come up with solutions to tame inflation as well as strengthen the shilling.
However, following the President’s remarks the shilling strengthened to close at Sh93.40/70 compared to Wednesday’s Sh94.15/25 against the greenback with traders expecting it to strengthen further.
In January, the IMF approved $509 million extended credit facility to help Kenya boost its international reserves over a three-year period.
President Kibaki said he expected the IMF disbursement to be front loaded to ensure ample supply of foreign exchange to finance required imports without putting pressure on the shilling.
The Head of State also directed financial regulators to deal firmly with foreign exchange speculators who may seek to take advantage of the turbulence in the financial market for selfish gains.
“No one has a right to take undue advantage of our open market policies. At the end of the day as a government, we have a great responsibility to take care of the welfare of our citizens,” he said.
In June, the CBK disclosed that it would take stern action against five commercial banks that have either been exporting or holding huge foreign exchange thus putting undue pressure on the shilling.
CBK Governor Prof Njuguna Ndung’u said the regulatory actions would deter them from speculating further and thus profiteering from the depreciating shilling.
At the same time, Economic Secretary Dr Geoffrey Mwau has expressed optimism that the shilling will continue to strengthen in coming days supported mainly by increasing tourism and export earnings.
He is also confident that the currency will stabilise particularly after the government managed to eliminate the distortions that were responsible for its plummeting.
“All the fundamentals are fine and as long as we coordinate our policy directions and at the same time engage the financial sector players we are going to see the exchange rate getting stronger,” he said on the sidelines of a meeting attended by visiting Lord Mayor of London Right Honorable Michael Alderman Bear.
The economist however declined to speculate on what levels the shilling would stabilise at saying that would be determined by the market.
“What we do not want to see is huge fluctuations or huge jumps in the exchange rate but we want to see some stability in the market because we need predictability,” he stressed.
He spoke a week before the CBK’s Monetary Policy Committee special meeting where he disclosed that they would be seeking to firm up the policy direction.
Although he remained guarded as to whether the team would increase or lower the Central Bank Rate, he did say that the intention was to ensure that the policy stance was consistent with the country’s development objectives some of which are to stabilise the exchange rate and tame inflation.
Asked whether the government had run out of options to deal with this twin problem given the haphazard and half-hearted responses it had implemented in the last few weeks, Dr Mwau maintained that there were still many alternatives available to it.
(Additional reporting by Evelyne Njoroge)